Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 207: Determinants of Buyouts in Private Equity Firms

Louise Nordström () and Daniel Wiberg ()
Additional contact information
Louise Nordström: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Daniel Wiberg: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

Abstract: Private equity companies have become a major force in the economic landscape. Financial- and operational-engineering are innovative characteristics of this emerging method of finance. The existing empirical data provide strong evidence that private equity activity contribute positively to the rapid growth of companies. In this paper probability of private equity funded buyouts in the Nordic market is investigated. Operationally this is done by applying a logit model on a number of firm specific accounting measures. The main finding is that it is the dynamics of these variables in the target firms that are important for potential buyouts. That is, the growth measured as change in employees, change in the debt equity level, and the change in EBITDA margin, all have a significant effect on the probability of being bought by a private equity firm.

Keywords: private equity; buyouts; performance

JEL-codes: G32; G34

25 pages, December 18, 2009

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